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Mortgage Lending Perspectives
Grachev I.D., deputy of the State Duma of Russia, chairman of the State Duma Mortgage Commission of the RF Federal Council answers the questions of the editorial body staff
— Mr. Grachiov, why were you interested with a subject of mortgage crediting?
— It was four years ago. There were two main motives. First — that nowhere and never, in no country the housing problem was solved without usage of the hypothecation. And second, maybe, for me even more significant problem: where to take money for the development of business in Russia? This problem is even now acute: where to get the investments?
At my estimations to provide economic growth at the expense of small business it is required about billion dollars of the investments, and to activate large firms and realize the conversion drafts — about four billions. At any conditions Russia can not find the money to finance the second variant. And to finance the first — can, if it uses the real estate.
The liquid real estate in Russia now makes approximately 500 billions dollars. It can be deposited, in exchange, we can receive money — and they will be enough for a steady economic growth.
These are two motives, which have forced me to study the law on the hypothecation.
— What situation is now with the hypothecation? Someone considers, that it is not real for us: few rich people …
— Yes, some do not believe in the hypothecation. I think the following. People, who can buy something expensive on credit, always are approximately ten times more, than those who can buy an expensive thing at once. Therefore I never doubted that the hypothecation will work and people will buy housing with its help. A problem is of another character: whether it will be at once a mass process or in the beginning it will be slow and restricted process?
— It looks like a restricted process now…
— Restricted, it is doubtless.
—The hypothecation is put into practice mainly in large cities?
— In the majority of large cities they attempt to realize classical mortgage variants, which have developed in USA and Germany and which really require either rich, or medium class people. At the same time, according to our Ministry of economy, if we want to give the credit at a rate of 70 % from cost of housing, the number of people, capable to pay for such credit at the present rates, consist approximately 7 %. And people, capable at a standard situation to pay for the credit of 30 % of cost of a flat, make from 30 to 50 % of the population. It means, that, basically, the mass usage of variants of the hypothecation of the Latin American model is possible for us.
— Tell a little bit about so-called net and substitute mortgage programs. What is their difference?
— Traditional mortgage scheme can be considered on an example. A young family, which has nothing, except for the stable income of the salary, addresses a mortgage bank in Germany or a usual bank in USA, displays there the credit history, incomes, guarantee from those who provides it with job and stable income, makes out the credit of 80percents from cost of the housing, necessary to it, adds or at all does not add a small sum of money — and receives a new good flat, and then pays for the credit.
— What is the most often credit period?
— 15-30 years.
— What percent on the average should be deducted from the income?
— Approximately as much, as in Russia — 30 % from the incomes of a family. The burden, is, certainly, significant, but a family becomes the participant of good mortgage programs: it can pay 70 % of cost of housing, and even more. The state interferes then. In the European countries, for example, in Belgium, it, as a matter of fact, writes off half of this sum.
— Why does the state write off the debt?
— Because the state benefits a lot, when involves people in the mortgage programs. The housing problem is solved, it is not necessary to have problems with municipal housing. Secondly, mortgage money is good investment money. The incomes of the citizens "are fastened", so it is possible to print additional money. At the same time an open hypothecation results in a construction boom. Recently, China attempted to use mortgage programs very actively, when the economic growth was moderated in connection with the Asian crises.
For the Americans the system has some singularities. The banks sell to special agencies the mortgages on flats bought on the hypothecation. Then on the basis of these mortgages the agency emits the secondary securities. Then secondary money are returned in banks, and again invested in the hypothecation. That is the way the system works …
The Germans have a single-level system. Their mortgage banks are special banks, they have got the rules of the game different from the others. They have got the permission to effectuate other bank operations, but very restrictedly. They issue secondary securities. So they receive additional money for the reinvestment in the hypothecation. Also in Germany, as they have started, as we did, at the rather low-level incomes of the population, there is still a system of loan cash departments: people, starting with nothing, prove, that they can pay a certain sum per month, accrue money in these cash departments.
As to neoclassical variants of the hypothecation, they were applied in Latin America and based on the fact that the man invests from the sum that he has accumulated. To become a subject of the hypothecation, he should invest his old asset, receive new, good asset, but thus the small part is credited for him.
Such variants can be applied in Russia much more commonly. They, by the way, correspond to what was made in the Soviet time: the good factories organized the chains of improving of housing. For example, the worker received a four-room flat, leased his old three-room flat, it is given to another, and so on. Sometimes up to five men participated in a chain.
—How would you characterize the Moscow situation with the hypothecation?
— I consider it a little stagnant. The schemes, which developed before August crisis, now can not have a mass character. At the same time, the Moscow leaders of the hypothecation would not like to pass on the road of the schemes, which seem substitute. It is necessary to note that the Moscow hypothecation started with the builders, who constructed and sold a lot of housing. And then the market began to be displaced, and, naturally, there was an idea, that it is necessary to sell on credit. But it is essential that the usual prices do not correspond to the cost price of housing, and it is rather problematic to convince people to pay for the hypothecation more then a cost price. In this sense the declaration of Juri Loujkov that it is necessary to reduce prices and make them closer to the cost price, is correct, but also very difficult to realize.
Moscow, in my opinion, should try different variants of the hypothecation, as it is done, for example, in Czech republic, which, by the way, is smaller than Moscow.
— How the hypothecation is geographically spread in Russia now?
— It is possible to enumerate only separate cities and locales, where the hypothecation is realized, for example, Angarsk, Irkutsk, Rostov-on-the-Don, Penza, Ryazan, Belgorod, Moscow and St.-Petersburg, naturally, and a …a small town Sarov. There is no feeling, that these are only rich locales. For example, the town Zarechny of the Penza area tries to use the hypothecation.
— What hinders? What it is necessary to do to make the hypothecation common?
— Now it is important to regulate streams of money from different sources, for example, housing certificates for the military men. I was occupied with this problem in 1997. How much money was transmitted to the Ministry of defense from the Ministry of finance on these purposes? By my estimations, approximately 40 % of what was necessary for the military men, that they have coped with this problem. In 2,5-3 years it was possible to solve it, and using the hypothecation — in one year!
Or, for example, the resettlement from the North. Big sums are invested — both budgetary and private. This money should be integrated, the purposes of their use should be described, and then very much will be solved, without waiting for a second Appearance…
— May be, it is necessary to change something in the local law as well?
— Sure. For the hypothecation to be mass, cover at least 70 percents of the population (even in the long term), it is necessary, that money, which a man invests at least were not taxed with the income tax. And now this money is subject of the income tax. In the beginning, they say, you should pay, and then invest in the hypothecation. Basically, it is abnormal, it is no done like this in the world.
In Russia all operations with flats are taxed with the VAT, therefore those who use the hypothecation invent different schemes in order not pay VAT.
When people have bought a flat through the hypothecation, they should organize the condominium, and it becomes clear, as there are charges there: in connection with the VAT, and in connection with non-conformity of a board, which they will pay then for public utilities to board for usual municipal housing.
Something should be changed in the bank local law as well …
Actually, there is a whole series of laws, which should be "cleaned", as they brake standard development of the hypothecation.
— And what to do, for example, with a situation, when the man has already taken the credit, lives in a flat and suddenly ceases to pay?
— When we have written the law on the hypothecation, the foreigners from different banks, including from International bank of reconstruction and development, have attacked us: you, they say, have not solved the problem of expulsion. Then we have begun to think it over. Well, we say, and you, is a man really thrown out from a flat on a street for default of payment under the credit? It becomes clear, that for them also it is uneasy to make it. For example, the man will bring medical documents, will discover any other arguments, why he does not pay.
As a matter of fact, everything that is written in the law on the hypothecation, quite corresponds to the Russian realities. In the Constitution and in the Housing code it is fixed, that the man can not live on the street, if so, there the scheme of social housing is registered in the implicit way. If the city realizes the idea of hypothecation, basing on the interior laws, the defaulter can be expulsed. It, requires an improvement of the law on privatization and Housing code.
— What laws connected with the hypothecation, it is necessary to pass first of all, on your opinion?
— From my point of view, the first and principal — the taxes. The corrections to the VAT and income tax are necessary, so that the man could, not hiding anything, display the income. The rate of income tax should not be high. Second: the investment of money in housing should be released from income tax. Well, if it is not the palace for one million dollars.
— You mean, the gradation of this criterion is necessary?
— It is easy to make it. It is simply necessary to create the categories of the real estate. The real estate of one category is a subject of taxation, other category — not.
— What is the nearest future of the hypothecation?
— In Russia there will be no revolutionary modifications in a nearest future— and thanks God! There will be an evolutionary development, so, we have a possibility "to clean" almost all the local law, except for taxation. The taxes are always a subject of "war" with the government. The hypothecation, on my opinion, will become more and more spread and will give an impulse to the investments and economic growth. There is no other way.
Alexandre Klimov
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